On this day 16 years ago, the popular show The Office made its television debut, quickly becoming well-known for its irreverent yet insightful takes on office life. In ‘mockumentary’ format, the commonalities and mundanities of day-to-day office life familiar to tens of millions of Americans were depicted through the lives and interactions of the Scranton branch of Dunder Mifflin’s sympathetic characters and relatable situations.
Throughout its run, the characters encounter a number of different businesses, usually as employees, each reflective of shifting business dynamics amid a rapidly-changing economy. And thus, usually with subtlety, important concepts about economics and business are revealed. Through Dunder Mifflin, Sabre, the Michael Scott Paper Company, and others, we receive glimpses of how firms, entrepreneurs, and business managers respond to changing economic trends and structures with examples of economic calculation and entrepreneurial alertness and error.
The ODP Corporation (formerly Office Depot)
Dunder Mifflin Paper Company
Ronald Coase, in his highly influential 1937 article “The Nature of the Firm,” envisioned corporate organizations as a network of contracts: The emergence of firms signifies the discovery and employment of cost-saving measures via internalization. For dealing with certain transaction costs, including but not limited to those associated with bargaining, searches, protecting trade secrets, and other aspects of running a business, bringing certain functions within a corporate structure tends to be cheaper and more effective than procuring them in the open commercial marketplace.
Forming a business is a purposeful action. Individuals who identify gaps in the market––a phenomenon which Israel Kirzner refers to as “alertness”––respond to perceived profit opportunities arising from discrepancies in prices, qualities, quantities, or aspects of the present constellation of available goods and services. If they choose to act upon and close that perceived market disparity, they or a related party, economically calculate: planning a commercial venture that attempts to incorporate market prices, consumer tastes and demand, and a host of additional information drawn from both knowledge and experience into a profitable venture.
The backstory of The Office begins in 1949 with the founding of Dunder Mifflin for the purpose of selling metal brackets used in construction. A dismal product and highly niche market, to be sure, but one easily imagines a lucrative opportunity there, especially during the post-war boom in both industry and housing in eastern Pennsylvania. We don’t hear much about the history of Dunder Mifflin other than the fact that at some point the founders abandoned metal construction brackets to engage in the retail paper supply business.
We are never told why, but may infer that as post-war construction began to cool, demand for metal construction brackets fell, becoming less profitable (or even unprofitable) to a point where the founders found the risk-return ratio unsatisfactory. They likely anticipated––again, alert to opportunities––that the next wave of post-war development would see the arrival of firms that provide services to the new manufacturing, heavy industry, and mining concerns. Law, financial, insurance, and other companies, not to mention rapidly growing municipalities, were nothing if not paper-devourers. The Dunder Mifflin founders undoubtedly calculated well economically and managed skillfully for some time, as we learn that the company is eventually headquartered in New York City, publicly traded on the New York Stock Exchange (ticker: DMI) with numerous branches across the northeastern United States by the late 1990s.
Of course, entrepreneurial alertness only goes so far, and many entrepreneurs are keen at discovering opportunities but not running businesses, especially not when the winds of creative destruction begin to blow with vigor. As the turn of the century drew near, roughly at the time that the series picks up, Dunder Mifflin is found grappling with a rapidly changing economy. The threat came as a double-whammy: paper becoming less important amid rapid digitization, and the retail paper market being dominated by several massive, efficient, price-chopping competitors, notably Office Depot and Staples. In the very first episode of the series, in fact, the audience is quickly informed about impending layoffs and branch closures to cut costs.
Over six seasons, we watch attempts to control costs and compete with larger rivals. In an arc now referred to as the “Rise and Fall of Ryan Howard,” the former Scranton temp-turned-corporate-executive implements an online shopping option for customers (“Dunder Mifflin Infinity”), which fails spectacularly.
(Ryan Howard’s poor business acumen is a running gag in the show. Not only is he a poor salesman who doesn’t seem to have learned much in his MBA course––not knowing the difference between fixed and variable costs––his two attempts at business creation go awry. One ends in ignominy, the other in farce.)
Try though Dunder Mifflin might, it cannot right the ship. More branch closures and the termination of ineffective executives are too little too late. And just before filing for bankruptcy, we get a brief glimpse of exactly how happy shareholders are with Dunder Mifflin’s use of their investment dollars.
OfficeMax (acquired by Office Depot in 2013)
We first meet Jo Bennett, CEO of Sabre, in season six. Dunder Mifflin finally goes bankrupt, and, unsurprisingly, potential acquirers are beginning to pick over the wreckage. Sabre is a printer company, and the prospects of cross-selling printers with paper––or having a regional paper company market printers––seems logical. It’s a great, if unintended, look at the entrepreneurial decision to pursue horizontal or vertical acquisitions, more broadly known as conglomeration. We see this with many business acquisitions today, such as Salesforce’s purchasing of Slack and Tableau, all workplace software.
In Coase’s conception, firms aid in the entrepreneurial function of allocating resources by lowering certain costs. Yet when market prices are insufficient or nonexistent, a firm may acquire a provider of a certain factor good or service to harness the knowledge that would otherwise be viewed on the market via prices. In better times, Bennett’s printer company would likely have had a co-marketing agreement (or no association whatsoever) with a paper company; but in distress, the assets of Dunder Mifflin may have added value at minimal cost to Sabre’s product lines.
In addition, Sabre may seek to lower customer acquisition costs, which ties into Coase’s explanation as to why firms form: It is more costly to acquire a new customer than reengage a preexisting one. Since Dunder Mifflin has an established customer base in the Northeast, Sabre can more easily and cheaply expand their reach.
Ultimately Sabre is liquidated, as the mistakes of eccentric CEO Robert California lead to the Dunder Mifflin division being sold to former CFO David Wallace. (Wallace, since the Sabre takeover, had been living in a sort of self-imposed exile in his home, working on a strange vacuum contraption to expedite toy clean-up called “Suck-It”; it is an innovation which even the doltish Michael Scott thinks is absurd. But we learn later that an unnamed military contractor has inexplicably purchased his invention for $20M.) With his newfound wealth, Wallace buys the defunct firm believing he can make it profitable again.
On TV as in the real world, there exists a surfeit of individuals with alertness, calculation, and management resources who are willing to go up against larger, entrenched competitors with seemingly every advantage, certain that they have a unique twist on how to make it work. Sometimes they do, and we are all better off because of it.
Staples Inc. (acquired by Sycamore Partners in 2017)
Michael Scott Paper Company
When Dunder Mifflin hires Charles Miner, Michael Scott becomes increasingly frustrated with Charles’s relentless squashing of Michael’s daily antics. In a great act of defiance, Michael channels his extensive personal experience to start his own company: the Michael Scott Paper Company. And, as is the case with many such businesses, it is run in a somewhat slipshod fashion.
Initially, Michael’s firm––composed of three people in a cut rate closet office space a few floors below Dunder Mifflin offices––begins seizing some of his erstwhile firm’s largest customers. But, the acquisition of those customers is built upon offering rock-bottom prices. The prices are so low, in fact, that the rate of growth of their other, variable costs––to rent and fuel a van amid an expanding customer base, of greater space requirements, and of an additional employee and benefits for all––are bankrupting them. When Michael and his employees meet with the accountant, they are quickly faced by harsh realities:
Monetary profit is more than just a means of earning income for entrepreneurs; it is a guide for locating and fulfilling unmet consumer desires. Profit signals the successful creation of social value. Built upon prices, profit-and loss-accounting permits comparisons of business models which are objective, immediate, and largely non-controversial.
In terms of Kirzner’s idea that entrepreneurs are “alert,” Michael is not the archetype. He starts the paper company not because he discerns a profitable opportunity in the market, but he is rather motivated by frustration with his new boss. On the other hand, Michael is alert in other ways: He has unique information and experience in the paper industry in Scranton. Though, the information he holds is not enough to give him an advantage over his competitors, which would derive significant profit. Overall, his economic calculation is off.
That particular story arc has a happy ending, as even though it is discovered that Scott has been calling customers asking for more money, a buyout takes place bringing the three former Dunder Mifflin employees––and the lost accounts––back to the Scranton branch. Michael’s enterprise may not have added to overall social well-being, but value is subjective and the overall consideration received was, in this case, vastly higher and more consequential than the profits might have been.
International Paper Company (scores of acquisitions and restructurings between 1986 and 2012)
Though The Office may offer a somewhat exaggerated account of entrepreneurial alertness, economic calculation, and the vagaries of corporate management, the broader strokes of its characters’ endeavors are informative. Namely, these are concepts that lie in the pages of economics and business textbooks, accompanied by graphs that make the layman’s head turn. Yet, viewed through the lens of Dunder Mifflin’s trials and tribulations, these concepts become accessible––even subconsciously.